Question 1

The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

Accepted Answer

A) True 
 B)False

Question 2

Other things the same, if the Fed increases the rate at which it increases the money supply then the short-run Phillips curve shifts right in the long run.

Accepted Answer

A) True 
 B)False

Question 3

When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

Accepted Answer

A)  if they contract aggregate demand, the unemployment rate will increase further.
B)  if they expand aggregate demand, the inflation rate will increase further.
C)  they face a less favorable trade-off between inflation and unemployment than they did before the shock.
D)  All of the above are correct.E) All of the above
F) B) and C)

Question 4

In the long run, a decrease in the money supply growth rate

Accepted Answer

A)  reduces expected inflation so the long-run Phillips curve shifts left.
B)  reduces expected inflation so the short-run Phillips curve shifts left.
C)  Both A and B are correct.
D)  None of the above is correct.E) A) and C)
F) A) and D)

Question 5

In the long run, an increase in the money supply growth rate

Accepted Answer

A)  increases inflation and shifts the short-run Phillips curve right.
B)  increases inflation and shifts the short-run Phillips curve left.
C)  decreases inflation and shifts the short-run Philips curve right.
D)  decreases inflation and shifts the short-run Phillips curve left.E) C) and D)
F) B) and D)

Question 6

A favorable supply shock

Accepted Answer

A)  raises unemployment and the inflation rate.
B)  raises unemployment and reduces the inflation rate.
C)  reduces unemployment and raises the inflation rate.
D)  reduces unemployment and the inflation rate.E) None of the above
F) A) and D)

Question 7

Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

Accepted Answer

A)  People adjust their expectations of inflation rapidly.
B)  People believe policy announcements made by central bank officials.
C)  The short-run Phillips shifts rapidly.
D)  All of the above are correct.E) A) and B)
F) B) and C)

Question 8

Contractionary monetary policy

Accepted Answer

A)  leads to disinflation and makes the short-run Phillips curve shift right.
B)  leads to disinflation and makes the short-run Phillips curve shift left.
C)  does not lead to disinflation but makes the short-run Phillips curve shift right.
D)  does not lead to disinflation but makes the short-run Phillips curve shift left.E) A) and B)
F) A) and C)

Question 9

Which of the following depends primarily on the growth rate of the money supply?

Accepted Answer

A)  inflation and the natural rate of unemployment
B)  inflation but not the natural rate of unemployment
C)  the natural rate of unemployment but not inflation
D)  neither inflation nor the natural rate of unemploymentE) None of the above
F) All of the above

Question 10

In the long run, if the Fed increases the rate at which it increases the money supply,

Accepted Answer

A)  inflation will be higher.
B)  unemployment will be lower.
C)  real GDP will be higher.
D)  All of the above are correct.E) A) and C)
F) C) and D)

Question 11

An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

Accepted Answer

A) True 
 B)False

Question 12

A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

Accepted Answer

A)  downward pressures on prices and wages.
B)  downward pressures on prices and upward pressures on wages.
C)  upward pressures on prices and downward pressures on wages.
D)  upward pressures on prices and wages.E) B) and C)
F) None of the above

Question 13

Which of the following is correct according to the long-run Phillips curve?

Accepted Answer

A)  No government policy, including changes in monetary growth, can change the natural rate of unemployment.
B)  Changes in the money supply growth rate is the only government policy that can change the natural rate of unemployment.
C)  Monetary policy cannot change the natural rate of unemployment, but other government policies can.
D)  Monetary policy and other government policies can both change the natural rate of unemployment.E) C) and D)
F) None of the above

Question 14

Figure 22-2
Use the pair of diagrams below to answer the following questions. 
-Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

Accepted Answer

A)  D and 2.
B)  D and 3.
C)  back to C and 1.
D)  None of the above is correct.E) None of the above
F) A) and B)

Question 15

A favorable supply shock will cause

Accepted Answer

A)  unemployment to rise and the short-run Phillips curve to shift right.
B)  unemployment to rise and the short-run Phillips curve to shift left.
C)  unemployment to fall and the short-run Phillips curve to shift right.
D)  unemployment to fall and the short-run Phillips curve to shift left.E) B) and C)
F) C) and D)

Question 16

A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

Accepted Answer

A)  consistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would not increase inflation.
B)  consistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would increase inflation.
C)  inconsistent with the long-run Phillips curve. However, the long-run Phillips curve implies that such a policy would not increase inflation.
D)  inconsistent with the long-run Phillips curve. Further, the long-run Phillips curve implies that such a policy would increase inflation.E) B) and C)
F) C) and D)

Question 17

Figure 22-5
Use the graph below to answer the following questions. 
-Refer to Figure 22-5. Curve 2 is the

Accepted Answer

A)  long-run Phillips curve.
B)  short-run Phillips curve.
C)  long-run aggregate demand curve.
D)  short-run aggregate demand curve.E) B) and C)
F) C) and D)

Question 18

An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

Accepted Answer

A) True 
 B)False

Question 19

Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS)  curve and two aggregate-demand (AD)  curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." 1 to AS2 A) results in a more favorable trade-off between inflation and unemployment. B) results in a more favorable trade-off between inflation and the growth rate of real GDP. C) represents an adverse shock to aggregate supply. D) represents a favorable shock to aggregate supply." class="answers-bank-image d-inline" rel="preload" >
-Refer to Figure 22-8. The shift of the aggregate-supply curve from AS1 to AS2

Accepted Answer

A)  results in a more favorable trade-off between inflation and unemployment.
B)  results in a more favorable trade-off between inflation and the growth rate of real GDP.
C)  represents an adverse shock to aggregate supply.
D)  represents a favorable shock to aggregate supply.E) A) and B)
F) A) and C)

Question 20

If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

Accepted Answer

A)  right. It remains to the right regardless of monetary policy.
B)  right. It remains to the right if the central bank pursues expansionary monetary policy.
C)  left. It remains to the left regardless of monetary policy.
D)  left. It remains to the left if the central bank pursues expansionary monetary policy.E) C) and D)
F) A) and C)

Exam 22: The Short-Run Trade-Off Between Inflation and Unemployment

Contractionary monetary policy

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Which of the following would tend to shorten recessions associated with anti-inflation policies by central banks?

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When they are confronted with an adverse shock to aggregate supply, policymakers face a difficult choice in that

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An adverse supply shock shifts the short-run Phillips curve right. If people raise their inflation expectations, the short-run Phillips curve shifts farther right.

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A basis for the slope of the short-run Phillips curve is that when unemployment is high there are

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A politician blames the Federal Reserve for being "soft on unemployment" and claims that a permanently higher money supply growth rate will lead to a permanent reduction in the unemployment rate. The politician's argument is

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Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 22-8. The shift of the aggregate-supply curve from AS1 to AS2

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In the long run, a decrease in the money supply growth rate

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A favorable supply shock will cause

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Which of the following depends primarily on the growth rate of the money supply?

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An increase in the natural rate of unemployment shifts the long-run Phillips curve to the right.

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The classical notion of monetary neutrality is consistent both with a vertical long-run aggregate-supply curve and with a vertical long-run Phillips curve.

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Figure 22-5 Use the graph below to answer the following questions. -Refer to Figure 22-5. Curve 2 is the

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A favorable supply shock

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Which of the following is correct according to the long-run Phillips curve?

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In the long run, if the Fed increases the rate at which it increases the money supply,

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In the long run, an increase in the money supply growth rate

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If there is a temporary adverse supply shock, then the short-run Phillips curve shifts to the

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Figure 22-2 Use the pair of diagrams below to answer the following questions. -Refer to Figure 22-2. If the economy starts at C and 1, then in the short run, a decrease in taxes moves the economy to

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Other things the same, if the Fed increases the rate at which it increases the money supply then the short-run Phillips curve shifts right in the long run.

Correct AnswerverifiedShow Answer

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Figure 22-8. The left-hand graph shows a short-run aggregate-supply (SRAS) curve and two aggregate-demand (AD) curves. On the right-hand diagram, "Inf Rate" means "Inflation Rate." -Refer to Figure 22-8. The shift of the aggregate-supply curve from AS₁ to AS₂

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